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Expert Panel Predicts 'Strong' Growth in Natural/Organic Foods

DAYVILLE, Conn. -- The natural/organic market can expect "good, strong growth" overall in the future, said the president and c.e.o. of specialty distributor United Natural Foods here, Michael Funk, part of a panel of market experts speaking yesterday at the RBC Capital Markets Consumer Conference in Lake Buena Vista, Fla.

September 27, 2006, 08:00 pm

DAYVILLE, Conn. -- The natural/organic market can expect "good, strong growth" overall in the future, said the president and c.e.o. of specialty distributor United Natural Foods here, Michael Funk, part of a panel of market experts speaking yesterday at the RBC Capital Markets Consumer Conference in Lake Buena Vista, Fla.

Wild Oats' Dimond talked about his chain's "significant initiatives" in private label, including its strategy to pioneer the creation of a premium store-brand line of products. Now about 1,500 products strong, the line has experienced "double-digit" growth, and enjoys a 30 percent-plus category share in each category in which items have been introduced, according to Dimond.

Noting the company's success in partnerships with Peapod and Stop & Shop, as well as Amazon.com, in introducing its products to customers beyond Wild Oats' trade area, Dimond said the retailer was interested in further alliances with supermarket operators that would carry its private label products, although he provided no further details.

The execs agreed that media coverage has generally been "kind and generous" to organics. However, Kamil of NBTY said that the vitamin/industry industry was still rebounding from a negative report on vitamin E a few years ago, which has since been repudiated.

Referencing the current E. coli-infected spinach issue, UNFI's Funk noted that no organic growers had been specifically implicated in the infection, and added, "Overall, people recognize that food safety is a primary concern of our business -- they see our products as much safer."

Dimond noted that Wild Oats' proactive decision to pull spinach from its shelves immediately demonstrated to shoppers its credibility and commitment to safety.

On the subject of Wal-Mart's foray into organics, Funk of UNFI compared the megaretailer's entry into the market to when supermarkets began to carry organics, about 20 years earlier.

"Supermarkets brought awareness [of organics] to a whole other set of consumers," rather than stealing share from independent operators, and Wal-Mart was bound to do the same, Funk said. Dimond added that he considered Wal-Mart's organics strategy "good news," in that it brought "a lot of visibility to the industry," and that there was "really no overlap" between a Wild Oats customer and a Wal-Mart customer.

As to the issue of whether Wal-Mart would beat its competition with lower prices, Funk responded that Wal-Mart wouldn’t be able to "dictate prices in organics like it can in other industries," due to the labor-intensiveness of certain crops. Dimond noted that Wild Oats was protected from pricing dynamics by "long-standing relationships" with vendors, many such connections extending several years into the future.

Among Wild Oats' methods of differentiating itself as a specialty store, according to Dimond, is a store model, first rolled out in Tampa, Fla., in which perishable departments are all on one side of the store. This layout has proved a "huge hit," he said, and would be incorporated into future store remodels.

When asked about up-and-coming trends in the organic/natural market, Dimond noted gluten-free products, which Wild Oats has identified as a service to its customers. UNFI's Funk pointed to GMO and irradiated products, currently a key issue in Europe, as the next big thing that U.S. shoppers will be concerned about; he also mentioned locally sourced product, environmental sensitivity, and fair trade items as other major trends. NBTY's Kamil said the industry would continue to consolidate, citing his company’s pending purchase of the Ester-C vitamin brand from Zila.

Considering the future, Funk said he saw the various channels growing at "a pretty much equal level." As for expansion through acquisition on the distribution/retail side, he and Dimond expected fewer such opportunities, with Dimond positing an increase in "organic growth" -- pun only partially intended.